SEZ, The REIT Investment Strategy
Mutual fund-like investment instruments are REITs. The acquisition of real estate properties is a REIT’s main objective. It might be done by renting them out & managing them as part of a portfolio of investments to assure a steady yield. The rising Indian economy depends on the real estate industry. It affects the overall economy in a multiplier manner. Real estate assets are held, manage, and invests in through the usage of a real estate investment trust (REIT).
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These might include houses that are finish or under construction and are use to make money. These are commercial properties, such as offices, malls, and warehouses. Hotels, hospitals, and conference centres are all considered to be part of composite real estate developments under the legislation if they produce income or rent. Additionally, included are industrial parks & special economic zones (SEZ). SEZ has grown in importance as a vehicle for REIT investment.
The acquisition of real estate properties is a REIT’s main objective. As opposed to a listed real estate business, which is established to develop real estate properties & resell them, it can be by leasing them out & managing them to assure a steady yield as part of an investment portfolio. The real estate assets are often held by developers in Special Purpose Vehicles (SPVs). The pooling of several such assets under a single SEBI-regulate trust is made possible by a REIT investment.
Investment in REITs in India
A carefully thought-out infrastructure design aids in luring recurrent foreign investment and expanding the capital base required for each economy’s sustainable growth. The development of the business environment and the growth of the real estate industry both increase demand for hotel and office space. The sector needs new funding sources frequently because of a shortage of public funding. REITs, or real estate investment trusts, come into play at this time.
In 2007, SEBI introduced REIT investing for the first time to the Indian market. As interest in the investment vehicle increase, many regulations were announce. These were design to aid in the effective management of these investment funds. Currently, REIT businesses registers on Indian stock exchanges are govern by the SEBI.
SEZ: What is it?
In India, special economic zones (SEZs) are places where regional firms can benefit from incentives. SEZs usually offer business-friendly regulations, competitive infrastructure, duty-free exports, and tax advantages. Due of this, many global corporations select India’s SEZs as a preferred investment location. Particular interest in SEZs has been demonstrate by exporters. To encourage export centres and boost domestic manufacturing, the SEZ Act as it is now written was passed in 2006. The minimal alternate tax was apply later, though. Also introduce was the sunset clause, which would eliminate tax incentives. After that, these areas started to deteriorate.
To replace the SEZ Act 2005, the Indian government proposed the Development of Enterprise & Service Hubs (DESH) Bill. The DESH’s mission is to “enable the establishment, growth, and upkeep of Development Hubs.” These may include already-existing Special Economic Zones, which serve as communities for fostering economic activity, job growth, integration with global supply and value chains, maintenance of production and export goals, advancement of infrastructure facilities, & promotion of R&D spending.
The return to work following the epidemic has been slower than anticipated, despite the enormous pent-up leasing demand. Short-term effects of reduce demand are probably going to be felt. The DESH (new SEZ law) advancement is still crucial for boosting occupancy because of the substantial exposure of SEZs in the REIT investment portfolio.
SEZ categories in India
Free ports, bonded logistics parks, export processing zones, urban business zones, industrial parks or estates, and free trade zones are examples of SEZs. Following is a list of the many SEZ types:
Sector-Specific SEZ – Committed to manufacturing one or more products in a certain sector. For instance, electronic goods (using 10 hectares or more of land) or one or more services (using more than 100 hectares of land).
Multi-product SEZ – Produces a variety of products or provides services to one or more sectors. (Land used: at least 1000 hectares).
SEZ in a port or airport; or for free trade and warehousing – SEZ in a port or airport, or for free trade & warehousing (uses 40 or more hectares of land area) – Producing goods in two or more industries involves trading and warehousing.
Advantages of SEZ
SEZs are establish to aid in the speedy economic growth of the country. The following are some advantages of SEZs in India:
- Construction of infrastructure and creation of job possibilities.
- Tax advantages for regional enterprises and organisations
- Infrastructure improvements.
- It promotes the growth of foreign exchange revenues by generating additional jobs through exports.
- Businesses in SEZs are entitle to benefits including free energy, water, a discount on land prices, etc.
- These economic zones are known as duty-free industrial parks in terms of trade transactions, duties, and tariffs.
- In other words, goods and services provided to SEZs are considered exports and exempt from the Goods & Services Tax (GST).
SEZ Tax Advantages
The following are the main tax advantages open to SEZ developers:
- Creating SEZs for authorised operations that have received BOA approval are exempt from customs and excise taxes.
- Income from the business of constructing the SEZ is exclude from income tax for 10 years beginning in 15 years, as per Section 80-IAB of the Income Tax Act. (As of April 1, 2017, developers are subject to the sunset provision.)
- The Central Sales Tax (CST) is exclude.
- (Second Schedule and Sections 7 and 26 of the SEZ Act) Exclusion from Service Tax.
- Supplies to SEZ are zero-rate under the 2017 IGST Act.
Rising Housing Demand as a Result of SEZ Development
In India, there are 5,634 SEZ units that have been sanction as of September 30, 2022. In SEZs around India, more than two million people are employee. A notable indicator of the multiplier effect of job development on housing demand, retail consumption, & the economy is the rise of cities like NCR, Bengaluru, Chennai, Hyderabad, & Pune. SEZs based on manufacturing have also been extremely important in creating demand for cheap housing.
SEZ the REIT way to invest conclusion
SEZs are establish to aid in the speedy economic growth of the country. Fostering domestic & international investment and encouraging exports of goods and services are the key objectives. Some of the key benefits of investing in SEZs in India include tax incentives for local businesses operating there and infrastructure development. People in India can invest in pricey real estate, such as SEZs, & enhance their capital by getting dividend income thanks to REIT investments.
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